[EDITORIALS]In taxes, too much, too fastThe government is putting the final touches on a new real estate policy, which will be announced at the end of the month. According to reports from government sources, the new plan includes changes in the tax system, such as shortening the target year for increasing property tax up to 1 percent of the market price to 2009 and raising the transfer tax rate on multiple housing units to 60 percent.
In general, there is consensus among people that the tax system should be changed to increase property tax that is relatively low. But there will be unexpected side effects if it is raised drastically. A 1 percent property tax means that we have to pay a 2 million won ($1,950) tax for a house worth 200 million won and 5 million won for one worth 500 million won. If a middle-class salaryman has to pay a few million won or even 10 million won out of his yearly income, the impact on his household will be enormous.
People often point out that the property tax on American homeowners amounts to 1 percent of their properties’ market price. But the price of housing units in the United States is 3.7 times the annual income, which is lower than Korea’s 6.2 times and Seoul’s 8.9 times the annual income. Accordingly, even if we pay the same 1 percent tax, Koreans who live in relatively expensive houses will have to bear a much higher tax compared to their income. Especially for retired people, owning a house will become a burden hard to bear. In the United States, there is tax deduction for the aged.
Raising the transfer tax rate on extra housing units drastically will also bring about side effects. For those who own another housing unit as a means of investment, taking into account the light tax burden, it will be unexpected disaster. They should be given a grace period to sell their extra units.
It is also dubious whether the increase in property taxes will stabilize housing prices. In the long term, the higher taxes will discourage supply and thus increase the chances of housing price rising further.
In the future, we may be in the difficult position where we have to sell our houses because we can’t afford to pay high property taxes or can’t move to bigger units because we can’t afford to pay the huge transfer tax. A real estate policy like this is nothing but a shackle. The government must examine practical problems before making the solutions public.